You invest $700 in a security with a beta of 1.4 and $300 in another security with a beta of 0.8. The beta of the resulting portfolio is
A) 1.40.
B) 1.00.
C) 0.36.
D) 1.22.
E) 0.80.

Question

Quizplus · Accepted Answer

The beta of the portfolio is calculated as the weighted average of the betas of the individual securities, weighted by the amount invested in each. For the $700 investment in the security with a beta of 1.4: (700/1000)*1.4 = 0.98. For the $300 investment in the security with a beta of 0.8: (300/1000)*0.8 = 0.24. Adding these together gives a portfolio beta of 0.98 + 0.24 = 1.22.

You Invest $700 in a Security with a Beta of 1.4